Does Floor Trading Matter?

Authors: Jonathan Brogaard, Matthew C. Ringgenberg, Döminik Rosch

Abstract: While algorithmic trading now dominates financial markets, some exchanges continue to use human floor traders. On March 23, 2020 the NYSE suspended floor trading because of COVID-19. Using a difference-in-differences analysis around the closure of the floor, we find that floor traders are important contributors to market quality. The suspension of floor trading leads to higher spreads and larger pricing errors for treated stocks, relative to control stocks. To explore the mechanism we exploit two partial floor re-openings which have different characteristics. Our finding suggest that in person human interaction facilitates the transfer of valuable information that algorithms lack.